Amreli Jilla Dudh Utpadak Sahakari Sangh Limited Vs DCIT/ACIT (ITAT Rajkot)
The Income Tax Appellate Tribunal (ITAT), Rajkot, allowed the assessee’s appeal against the order of the National Faceless Appeal Centre (NFAC) relating to Assessment Year 2018-19.
During assessment under Section 143(3) of the Income-tax Act, 1961, the Assessing Officer denied deduction under Section 80P(2)(d) in respect of certain receipts by treating them as income from other sources instead of business income. The Commissioner of Income-tax (Appeals) partly allowed the appeal but sustained the disallowance of ₹7,44,170, representing interest earned on fixed deposits, holding that such interest was assessable under the head “Income from Other Sources” and was therefore not eligible for deduction under Section 80P(2)(d).
The Tribunal first condoned a delay of 42 days in filing the appeal after being satisfied that sufficient cause had been shown.
The assessee, a registered co-operative society engaged in procuring milk from its members and supplying it to the Federal Co-operative Society, contended that the fixed deposits were not made as investments for earning interest. Instead, they were created at the insistence of the bank as collateral security for obtaining overdraft and other credit facilities required for its business. It submitted that the interest earned had a direct nexus with its business activities and therefore constituted business income eligible for deduction under Section 80P(2)(d). The assessee also relied upon the Tribunal’s decision in Moodbidri Co-operative Service Bank Ltd. v. Income Tax Officer and pointed out that in its own case, the Department had accepted similar claims in earlier and subsequent assessment years.
The Department supported the orders of the lower authorities but admitted that the fixed deposits had been created for obtaining overdraft facilities from the bank.
After considering the submissions and the material on record, the Tribunal found that the Revenue had accepted the same claim in the assessee’s earlier and subsequent assessment years. In the absence of any change in facts or statutory provisions, the Tribunal held that the principle of consistency supported the assessee’s claim.
The Tribunal observed that the fixed deposits had been created as collateral security for availing overdraft and other banking facilities required in the ordinary course of business and not as independent investments. Accordingly, the interest earned on such deposits had a direct nexus with the business activities of the assessee and could not be treated in isolation as income from other sources.
The Tribunal also relied on the decision of the Coordinate Bench in Moodbidri Co-operative Service Bank Ltd. v. Income Tax Officer, wherein it was held that interest earned on fixed deposits maintained under statutory compulsion constituted business income eligible for deduction under Section 80P(2)(d).
Following the said decision, the Tribunal held that the interest of ₹7,44,170 earned on the fixed deposits was assessable as business income and that the assessee was entitled to deduction under Section 80P(2)(d). The orders of the lower authorities on this issue were set aside, and the Assessing Officer was directed to allow the deduction claimed by the assessee.
Accordingly, the appeal of the assessee was allowed.
FULL TEXT OF THE ORDER OF ITAT Rajkot
Captioned appeal filed by the assessee, pertaining to Assessment Year (AY) 2018-19, is directed against the order under section 250 of the Income-tax Act, 1961 [hereinafter referred to as ‘the Act’] passed by the National Faceless Appeal Centre [hereinafter referred to as ‘NFAC’], dated 06.01.2026, which in turn arises out of an order passed by assessing officer u/s. 143(3) of the Act, dated 10.06.2021.
2. The facts emerging from the record are that the assessment for the assessment year 2018-19 was completed under section 143(3) of the Income-tax Act, 1961. During the assessment proceedings, the Assessing Officer made an addition of Rs.33,39,749/- by denying deduction under section 80P(2)(d) of the Act, in respect of certain receipts, holding that the same constituted income from other sources and not business income.
3. Aggrieved by the assessment order, the assessee preferred an appeal before the Learned Commissioner of Income-tax (Appeals). The Ld. CIT(A) partly allowed the appeal. However, he sustained the disallowance to the extent of Rs.7,44,170/-, being the interest earned on fixed deposits with the bank, by holding that such interest was assessable under the head “Income from Other Sources” and, therefore, was not eligible for deduction under section 80P(2)(d) of the Act.
4. Being aggrieved, the assessee is in appeal before the Tribunal.
5. At the time of hearing, the Ld. AR submitted that there is a delay of 42 days in filing the present appeal. An application supported by an affidavit has been filed seeking condonation of the delay. Having considered the reasons stated therein and being satisfied that the assessee was prevented by sufficient cause from filing the appeal within the prescribed period, we condone the delay of 42 days and admit the appeal for adjudication.
6. The Ld. AR submitted that the assessee is a registered co-operative society engaged in the business of procuring milk from its members and supplying the same to the Federal Co-operative Society. It was submitted that the books of account are duly maintained and the return of income has been filed correctly. The Ld. AR further contended that the authorities below erred in treating the interest earned on fixed deposits as “Income from Other Sources”. According to him, the fixed deposits were not made as an independent investment for earning interest. Rather, the deposits were created at the insistence of the bank as collateral security for availing overdraft and other credit facilities required for carrying on the business of the society. Thus, there exists a direct and proximate nexus between the fixed deposits and the business activities of the assessee. Consequently, the interest earned on such fixed deposits forms an integral part of the business income and is eligible for deduction under section 80P(2)(d) of the Act. The Ld. AR drew our attention to the paper book and the bank statements to demonstrate that the fixed deposits were created solely as a business necessity for obtaining credit facilities and not with the intention of making investments. Reliance was also placed on the decision of the Coordinate Bench in Moodbidri Co-operative Service Bank Ltd. v. Income Tax Officer, 159 taxmann.com 1233 (Banglore Trib.), wherein it was held that where fixed deposits are maintained under a Statutory compulsion, the interest earned thereon constitutes business income eligible for deduction under section 80P(2)(d) of the Act, and the exercise of revisionary jurisdiction under section 263 of the Act, on the contrary assumption was held to be unsustainable. The Ld. AR further submitted that the issue is also covered in favour of the assessee in its own case. He pointed out that for Assessment Year 2013-14, the Ld. CIT(A), vide order dated 23.06.2016, held that the interest earned on fixed deposits constituted business income and allowed the assessee’s claim. Thereafter, reassessment proceedings under section 147 of the Act were initiated, and the Assessing Officer, while passing the reassessment order dated 13.02.2022, did not make any addition on this issue and accepted the treatment of the interest income as business income. It was further submitted that for Assessment Year 2021-22, the Assessing Officer, vide order dated 09.12.2022, also accepted the bank interest as business income and allowed the deduction claimed by the assessee. Thus, according to the Ld. AR, the Department itself has consistently accepted the assessee’s claim in the earlier as well as subsequent assessment years, and there is no reason to take a different view for the year under consideration in the absence of any change in facts or law.
7. The Ld. DR supported the orders of the lower authorities but fairly admitted that the fixed deposits had been created for obtaining overdraft facilities from the bank.
8. We have heard the rival submissions and perused the material available on record. We also find considerable force in the above submission. The Revenue has accepted the very same claim in the assessee’s own case for the earlier as well as subsequent assessment years. In the absence of any distinguishing facts or change in the statutory provisions, the principle of consistency also supports the assessee’s claim. Therefore, this is an additional reason for holding that the interest earned on the fixed deposits maintained as collateral security for availing banking facilities is assessable as business income and is eligible for deduction under section 80P(2)(d) of the Act. It is an admitted position that the assessee is a co-operative society engaged in the business of procurement and supply of milk. The material on record clearly establishes that the fixed deposits were created not as an independent investment but as collateral security for availing overdraft and other banking facilities required in the ordinary course of business. The interest earned on such fixed deposits has a direct nexus with the business activities of the assessee and cannot be viewed in isolation. We also note that in the subsequent assessment years, the Assessing Officer himself has accepted the claim of the assessee and treated such interest as business income. The issue is squarely covered by the decision of the Coordinate Bench in Moodbidri Co-operative Service Bank Ltd. v. Income Tax Officer, wherein it was held that where fixed deposits are maintained under a Statutory compulsion, the interest earned thereon constitutes business income eligible for deduction under section 80P(2)(d) of the Act, and the exercise of revisionary jurisdiction under section 263 of the Act on the contrary assumption was held to be unsustainable. We respectfully following the aforesaid decision, we hold that the interest of Rs.7,44,170/- earned on the fixed deposits is assessable as business income and the assessee is entitled to deduction under section 80P(2)(d) of the Act. Accordingly, the orders of the lower authorities on this issue are set aside, and the Assessing Officer is directed to allow the deduction claimed by the assessee under section 80P(2)(d) of the Act.
9. In the result, the appeal of the assessee is allowed.
Order pronounced in the open court on this 23rd day of July, 2026.
